Craft to the Consumer is Broader than Industry Definition

Transcription

1 Protecting Craft Against Pseudos June 2014

2 Craft to the Consumer is Broader than Industry Definition Brewers Association (Est. 2005) Dictionary (1) Craft to Consumer (2) Craft 8% Craft 2% Craft 11% Non-Craft 92% Small: Annual production of less than 6 million barrels of beer Independent: >25% of the Craft Brewery cannot be owned or controlled by a beverage alcohol industry member that is not itself a Craft Brewer Traditional: Flavor derives from traditional or innovative brewing ingredients and their fermentation Non-Craft 98% Merriam-Webster Dictionary: A specialty beer produced in limited quantities Oxford Dictionary: A beer made in a traditional or non-mechanized way by a small brewery Collins Dictionary: A specialized beer produced in limited quantities; a microbrew Non-Craft 89% Perception of Small Batch Perception of Independence Distinct / Innovative Flavor(s) Regional Historic Premium (1) Craft as defined as brewers with <1 million barrels produced annually. (2) Craft as defined as the Brewers Association definition + Craft-positioned brands excluded from the Brewers Association definition because of corporate ownership. Note: In 2014, the Brewers Associated amended the Craft definition to include brewers utilizing certain adjuncts in the mash bill. Note: Craft percentages based on volume. 2

3 Consumers Do Not Differentiate Craft and Craft-Positioned Pseudos ( Pseudos ) (1) Consumer Survey (2) Defining Brands Which of the following do you consider to be a "Craft" beer? (choose all that apply) 39.2% 39.9% Brewers Association Craft? Dictionary Craft? Craft to Consumer? Average: 29.4% Blue Moon 24.2% 25.4% 25.4% 25.4% 26.7% Samuel Adams Sierra Nevada Shock Top Lagunitas Pyramid Red Hook Craft (BA Definition) Sierra Nevada Pseudos Samuel Adams Blue Moon Red Hook Pyramid Lagunitas Shock Top Source: Demeter Group-commissioned Google Consumer Survey. (1) Demeter Group defines Pseudos as Craft-positioned beer owned by non-craft brewers. (2) Survey conducted via Google Consumer Surveys to 650 Males 4/29/2014 through 5/1/2014. None of the above results removed from the survey. 3

4 Adding to the Confusion, Retailers Co-Mingle Craft and Pseudos Pseudos Imports Note: Craft vs. Pseudos as determined by Brewers Association definition. 4

5 Craft s Market Size Potential is Much Larger from a Craft to Consumer Lens (Millions of Barrels) Craft to Consumer Volume ($ in Billions) Craft to Consumer Retail $ Share % 7.0% 7.8% 9.3% 10.6% Pseudos 38% BA Craft 62% $10.4 $11.9 $14.1 $0.8 $0.6 $16.6 $0.8 $0.9 $2.1 $0.7 $1.7 $9.9 $0.3 $2.5 $0.6 $0.6 $1.5 $2.3 $0.3 $0.2 $10.2 $1.2 $1.9 $1.1 $8.7 $1.6 $1.8 $7.6 $6.3 $ % 10.3% 11.8% 14.7% 16.5% Craft (BA Definition) Pseudos (MC) Pseudos (Other Ownership) New Craft (Adjunts) (1) (1) Craft (BA Definition) New Craft (Adjunts) Pseudos (ABI) Pseudos (MC) Pseudos (ABI) % of Beer Market (Craft + Pseudos) Pseudos (Other Ownership) % of Beer Market (Craft + Pseudos) (1) In 2014, the Brewers Associated amended the Craft definition to include brewers utilizing certain adjuncts in the mash bill. Source: Brewers Association and Demeter Group industry research. 5

6 Craft to Consumer is 19% of Today s Beer Market & Could Reach 33% (Retail $) Craft Forecast Barrel Volume 24.1% 22.3% 20.7% 19.1% 16.4% 17.7% 14.2% 12.3% 9.3% 10.6% 6.3% 7.0% 7.8% 12.5% 13.5% 14.6% 15.8% 17.1% 18.4% 10.9% 5.0% 5.6% 6.2% 7.2% 8.2% 9.4% E 2014P 2015P 2016P 2017P 2018P 2019P 2020P Assumptions Barrel Volume Maintain 15% Craft and Craft to Consumer volume growth in 2014P and 2015P Grow Craft and Craft to Consumer volume 8% in 2016P 2020P Craft to Consumer Craft (BA Definition) Hold overall Beer category flat with 2013E Retail $ Share 29.5% 27.9% 26.3% 24.9% 21.9% 19.3% 16.5% 14.7% 11.8% 9.8% 10.3% 19.0% 20.1% 21.3% 22.6% 16.8% 14.9% 11.5% 12.7% 7.8% 8.3% 9.4% 31.3% 33.1% 23.9% 25.3% E 2014P 2015P 2016P 2017P 2018P 2019P 2020P Retail $ Share Average retail price per barrel average of average retail price (1) Retail $ share of the entire beer market increases 2% yearly Craft to Consumer Craft (BA Definition) (1) 2013 average retail price of $918 is $168 larger than the average retail price per barrel. If 2013 retail price per Craft barrel maintains 2013 level, retail sales of Craft to the Consumer could reach 38%. 6

7 In Other Categories, Pseudos have Captured a Large Portion of the Opportunity Natural / Authentic Pseudo Original Personal Care Bread (1) Restaurants Nashville s Authentic Chicken Restaurant San Diego s Authentic Taco Restaurant KFC s New Fast Casual Concept Taco Bell s New Fast Casual Concept (1) Bread segmented based on wheat-positioned breads being made of whole wheat flour vs. combinations of other flours ( white bread in disguise ). 7

8 Craft is More Authentically Positioned, but Pseudos will Intrude on Craft s Growth Craft Pseudos Select Brands Marketing Focus on Brew Pub as word of mouth and key marketing tool Packaging as cue to tell story and artisan positioning Utilize social media to broadcast production process and engage with consumers Appearance of artisan, small batch, and / or historic beer Leverage packaging to suggest artisan positioning Large national marketing budgets to drive mainstream advertising and social media Distribution Focus on home markets with some developing a national presence Broad national distribution networks Piggybacking clout of parent company to rapidly achieve full national distribution Production / Scalability Evaluate a diversity of financing strategies to fund expansion Ability to scale to demand quickly via production arbitrage 8

9 Rapid Craft Facility Expansion ($1B+ by 2020P) Needed to Guard Against Pseudos Production Expansion (Barrels) Cost of Expansion (Barrels in Millions) ($ in Thousands) $201 $151 $234 $184 $153 $157 $161 $165 $ $101 $134 $103 $107 $111 $115 $ $53 $57 $61 $65 $ P 2015P 2016P 2017P 2018P 2019P 2020P Barrels Sold Potential Capacity Incremental Capacity 2014P 2015P 2016P 2017P 2018P 2019P 2020P Median Cost of Expansion Assumptions: Production grows at half the rate of Craft volume growth 7% in 2014P, 8% in 2015P, and 4% in 2016P 2020P Sales volume reaches 90% of Craft beer production volume in 2020 On average, each additional barrel of production capacity will cost $75 Source: Brewers Association and Demeter Group industry research. 9

10 Access to Capital Needed to Quickly Expand Production Brewery Stage Cash Flow Assumption Funding Implication(s) Top 2 Brewery $ in Millions Revenue EBITDA $2,000 $8,000 $17,000 $45,000 Self-Fund Ability to arbitrage fading brand capacity with Shock Top, Blue Moon, etc. Top 10 Craft Brewery Revenue EBITDA $15 $100 $150 $800 Self-Fund Ample Cash Flow allows expansion of existing facilities and / or new geographies Expansion Past 100,000 Barrels Revenue EBITDA $3 $7 $20 $35 Growth Equity Debt Sale Limited Growth Equity options Debt imposes growth covenants and restrictions Partial or full sale to a financial or strategic buyer Expansion Past 50,000 Barrels Revenue $10 $1 EBITDA $3 $20 Growth Equity Debt Sale Limited Growth Equity options Debt imposes growth covenants and restrictions Partial or full sale to a financial or strategic buyer Expansion Past 25,000 Barrels Revenue $2 $0 EBITDA $2 $10 Growth Equity JV with Large Craft Brewers Limited Growth Equity options Alignment with strategic partner may be attractive, but difficult to negotiate Note: EBITDA margins assumed at 15% - 20%. Brewpub Revenue assumed at $5 million for over 50,000 barrels and $2 million for <50,000 barrels. 10

11 Jeff Menashe Chief Executive Officer Marc Levit Associate 11